After a couple of years' worth of pandemic-driven growth, the personal computer industry is finally hitting a wall. That is to say, sales of PCs tumbled year over year during the first quarter of 2022. Most anybody who needed to buy one for work or to attend school at home has made such a purchase. They don't need a new one just yet.
The funny thing is, the sales slowdown isn't as uniform from one brand to another as you might expect. And there's a reason. Investors need to understand this reason before the industry's biggest names start releasing their latest quarterly results.
Sales are remarkably different based on brand
For the three-month stretch ending in March, worldwide computer shipments fell by 5.1% on a year-over-year basis. That's the number from technology market research outfit IDC, and the scope is confirmed by Gartner, which says shipments fell by 7.3%. No matter how you slice it, though, it's the first time the industry has suffered a sales slump since early 2020 when the pandemic put PC purchases into high gear. Deliveries also tumbled from Q4's levels, although that lull isn't unusual.
The slowdown, however, is impacting some manufacturers more than others, if it's impacting them at all. IDC's data indicates Lenovo's (LNVGY -1.22%) PC shipments fell 9.2% last quarter, while Dell Technologies (DELL -1.74%) mustered 6.1% growth. Though Apple and ASUSTeK Computer you know it better as just Asus -- both enjoyed year-over-year shipment increases, both are relatively small players that weren't competing against unfairly high comps.
The surprisingly big loser last quarter? PC industry stalwart HP (HPQ -0.12%). Its deliveries fell by 17.8%, according to IDC -- a figure Gartner completely agrees with. The image below tells the tale.
No, you're not seeing things. HP's deliveries have been weakening since the middle of last year, making it the only vendor to experience this phenomenon to this degree. Likewise, Dell was the only manufacturer to see significant sales growth even as the pandemic pressed on.
Different approaches to the same business
It's easy to dismiss anything that happens during a pandemic as merely pandemic-driven, and therefore only temporary. And perhaps that's a partial explanation for this divergence.
Just as much a factor behind the disparity between Dell's and HP's quarterly deliveries, however, is how each company approaches its design, manufacturing, and selling process.
It's not exactly easy to see unless you're explicitly looking for it, but Dell doesn't prioritize the use of mass-produced computers sold through conventional retail channels. While this is certainly part of its revenue mix, a bigger part comes from its build-to-order approach. Not only is this better for more patient customers, it gives Dell complete and ongoing control of its manufacturing process. If component availability is going to be an issue, Dell can adjust as needed before agreeing to deliver products it can't actually manufacture.
As Dell COO Jeffrey Clarke voiced it a couple of quarterly conference calls ago, "we have fewer SKUs, less complexity," adding, "we have a design methodology that has interchangeability and leverage and reuse."
This back-office control also allows the company to fully digitize every aspect of its designing and building process, including component procurement. From that same conference call:
... what I like about our supply chain is we've digitized it over the years. We're now able to do scenario planning and simulations. That simulation allows us to make quicker decisions.
HP is moving in the same direction, for the record. But it's clearly not moving quickly enough. CEO Enrique Lores conceded -- and not for the first time -- during February's Q1 conference call, "From the hardware perspective, shipments this quarter have been impacted by availability of supply." CFO Marie Myers also cautioned investors during the same call that "for Q2, we expect our top-line results to be incrementally constrained by a volatile supply chain and logistics environment and also the dynamic macro environment, including the Russia situation, all negatively impacting our top line."
A great deal of this headache stems from the fact HP only began seriously embracing the idea of digitizing its supply chain during the pandemic, when doing anything was tough to do. The company's current challenges are bolstered by the complicated fact, however, that a great deal of its business is done through third-party retailers looking to sell mass-produced, ready-to-run systems.
Perspective is everything
It's not necessarily all bad news. HP's unit shipments were falling year over year beginning in the third calendar quarter of last year, but higher selling prices allowed the company to grow personal systems revenue by double-digit percentages during the three-month stretch ending in January. End result? HP managed to top that quarter's earnings estimates with a solid bottom line of $1.72 per share. Meanwhile, Dell fell short of its earnings estimates for the comparable quarter.
Be careful of making more of estimates than is merited, though. HP's revenue inched up less than 9% for the quarter in question, while Dell's top line improved by an incredible 17% on a year-over-year basis.
As the old adage goes, there's always more to the story.
Oh, and in case you're wondering, analysts are calling for revenue growth of only 2% from HP for the quarter ending this month, yet are modeling about the same degree of growth from Dell. Somehow those identical expectations seem radically different for the two outfits, though, and both largely hinge on last quarter's pricing power.
Just keep in mind that much of these companies' definition of success is relative.